Our debt burden
Our debt burden
It is a relief to hear that the Consultative Group on
Indonesia (CGI) last week committed US$ 5.2 billion in new loans
and grants to Indonesia for the current fiscal year. With this
commitment, Indonesia is more assured of financing its
development plan for the current fiscal year.
The total amount needed for the development budget is around
Rp 27,4 trillion (about US$ 12.8 billion). More than one third of
that amount is expected to be financed by foreign loans arranged
through the World Bank-chaired CGI. Now that Indonesia has the
CGI pledge, a substantial part of the financial hurdle has been
overcome.
It could be said that this pledge once again shows confidence
on the part of the international community as represented by CGI
towards Indonesia's management of its foreign loans and economic
development. The World Bank indeed has repeatedly pointed out in
its yearly country report on Indonesia that the Indonesian
government has been prudently managing its external debts.
In short, Indonesia has proven over the years that its
creditworthiness is high. Indonesia has never reneged on the
servicing of its external debts, even at times of financial
crisis. In other words, Indonesia is a good place to extend a
loan to.
On the other hand, a loan is a loan, which has to be repaid,
principal plus interest. And for Indonesia, like for many other
developing countries, the duty of servicing its external debts
has been becoming increasingly burdensome. And it has become
harder and harder to figure out when that burden will be lifted.
Ever since 1987, the amount of money flowing out of this
country to service its external public debts has been
increasingly higher than the amount of new loans and grants
flowing in. Since fiscal year 1987 through 1993, Indonesia has
paid out not less than Rp 89.8 trillion to service its external
public debts. Within the same span of time, external loans and
grants to finance public projects amounted to only Rp 66.1
trillion.
In the 1987 fiscal year, the balance was around Rp 2 trillion,
or 33.23 percent in favor of the creditors. Last year, the CGI
creditors received around Rp 7.1 trillion net, or 74.9 percent
more than they provided in new loans and grants. This year, the
new commitments do not lessen the negative flow. No wonder the
CGI creditors unhesitatingly support the World Bank's
recommendation to continue providing Indonesia with new loans and
grants. Because instead of outflow, what they will receive is a
net inflow of around US$ 4 billion.
Considering that, it is all the more important for us to use
the foreign loans more efficiently. President Soeharto pointed
out that during the past weekend when Minister Mari'e Muhammad
reported the results of the two-day CGI meeting in Paris. He
emphasized that the loans and grants will be used prudently for
productive projects only.
Efficiency, however, is not our strong point whenever a public
project is the subject of discussion. Whenever the World Bank
complements the prudence of Indonesia's bureaucracy in managing
its foreign debts, that praise does not cover efficiency.
Instead, one of the challenges of Indonesian economic
development, as pointed out in the World Bank's report, is the
inefficiency of its execution. This inefficiency is indicated by
the still high ICOR (incremental capital output ratio) of
Indonesia's public projects. This ratio indicates the number of
units of input required to increase output by one unit.
According to the World Bank's estimates, Indonesia's ICOR is
relatively high at 4 - 5. In other words, to get an increase of
one unit in production, Indonesia needs 4 to 5 units of input,
which is higher than normal standard. From a management point of
view, such a high ICOR is seen as inefficiency. In layman's
words, there are too many leaks along the process of the
execution of a public project. In political terms, that is often
called corruption.
The burden of servicing foreign debts is already very heavy
for us to bear and is becoming increasingly so. It is hard to
imagine what the public reaction would be if people were to
realize that a substantial part of that burden is brought about
by corruption.